Market snapshot

Thames Valley Office Market Pulse Q3 2017

Take-up in the Thames Valley office market fell back slightly in Q3 2017, replicating the equivalent quarterly outcome in 2016. The most dominant sectors were professional services (20%) and technology media and telecommunications (19%), with Slough and Uxbridge seeing the most activity. Encouragingly, enquiry levels during the quarter were the second highest in the last six years; a marked contrast to the fall witnessed during the previous three months.

Following a slightly subdued start to the year, Q3 2017 marked a record for investment volume in Thames Valley offices, with a total of £1.19bn transacted.

Second highest Q3 enquiries total for six years

A total of 109 enquiries (over 5,000 sq ft) were received for Thames Valley offices in Q3 2017; an increase of 20% compared with the 91 received in the previous quarter. This increase was not uniform but mainly seen in the lower 5/10,000 sq ft range (46% increase Q2 to Q3).

For H1 2017, the enquiry level was down by 19% (217 v 267) compared to H1 2016.

Looking at the longer term trend, this is 18.75% below the five-year Q2 average of 112 and the lowest Q2 level of enquiries recorded in the last six years.

Demand falls back in Q3 but Slough leads the way

Take-up in Q3 2017 was 300,675 sq ft; a fall of 46 % from the 524,254 sq ft transacted in the previous quarter and slightly above Q3 2016’s total of 294,520 sq ft.

Total take-up to the end of Q3 in 2017 is 1,250,281 sq ft, which is remarkably similar to the same point in 2016 which totalled 1,262,266 sq ft.

The two most active business sectors in Q3 2017 were professional services (20%) and technology, media and telecommunications (19%).

Slough saw the largest take-up during the quarter, totalling 62,855 sq ft (21% of Thames Valley total office take-up in Q3 2017). Uxbridge had the second largest take-up total of 47,309 sq ft (16%).

Significant occupational transactions

Property

Size (sq ft)

Landlord

Tenant

Rent (per sq ft)

Lease (years)

The Porter Building, Slough

28,316

Landid Brockton

FirServe

£34.50

10

The Charter Building, Uxbridge

20,000

Landid Brockton

Spaces

£35.00

10

The Urban Building, Slough

19,471

Standard Life

McAfee

£27.50

10

1030 Winnersh Triangle, Reading

16,282

Oaktree/Patrizia

Becton Dickinson

£33.50

10

Rivergate, Newbury

13,154

Railwail Pensions Nominees Ltd

Rebound

£23.00

13

3 Arlington Square, Bracknell

13,144

Goodmans

Ivanti

Confidential

10

Onslow House, Guilford

12,079

Standard Life

Smith & Williamson

£33.50

10

Form 1, Hook

10,930

Kennedy Wilson

Taylor Wimpey

£17.50

10

Greenwood House, Bracknell

10,875

Savills IM

Display Data

£21.00

10

252 Bath Road, Slough

9,851

AEW

ZTE

£30.00

10

Office supply remains stable

Standing at 8.51m sq ft at the end of Q2 2017, total office supply across the Thames Valley has risen marginally, to 8.54m since the previous quarter. Compared with the same quarter in 2016, this represents a year-on-year fall of 6.39%.

The supply chain is heavily reliant on new development. We may see an accelerated fall as investors/developers respond cautiously to a likely reduced letting velocity and volume, in the short to medium term. Although there may be a short-term over supply in some locations, an under-supply will follow as new development is delayed, in reaction to a short term uncertain market.

Grade A supply is now 51.57% of the total, compared with 50.46% in Q1 2016.

Investment market review

Following a slightly subdued start to the year, Q3 2017 marked a record for investment volume in Thames Valley Offices. The total of £1.19bn was mainly comprised of three large transactions – Frasers Centrepoint’s acquisition of Oaktree’s Business Park portfolio, CPPIB’s purchase of a 50% stake in Milton Park and TPG’s long awaited completion on the Arlington Business Park portfolio. Aside from these deals, which for accounted for £850m of activity, there was still a further £340m of offices transacted which more than the first two quarters of the year combined.

Overseas investors dominated the market, being responsible for all 3 of the major deals of the quarter. Underlying this, the pool of buyers was very mixed with similar levels of activity from UK Institutions, UK Property Companies and Local Authorities, who purchased both within and outside their jurisdictions.

With a large number of deals converted in Q3, the volume currently under offer has shrunk to £240m and while there are 20 assets currently on the market, these amount to just £290m reflecting a distinct shortage of stock.

Key investment deals

Oaktree exited its entire portfolio of UK Business Parks, which included IQ Winnersh and Watchmoor Park in Camberley, prices at £365m and £42m respectively. The buyer, Frasers Centrepoint has also put Maxis in Bracknell under offer from the same vendor subject to conditions relating to occupancy.

TPG completed its long running purchase of The Arlington Portfolio, the marketing of which commenced in Q4 2016. The portfolio included two assets in the Thames Valley: two buildings and the remaining development land at Arlington Square in Bracknell and all five buildings at Uxbridge Business Park, two of which are vacant.

Columbia Threadneedle purchased Mercury Park in Wooburn Green from the original developer Comland for a price of £32m, reflecting a net initial yield of 6.96%. The park was heavily multi-let with 13% vacancy and marked only the second out-of-town acquisition by a UK Institution this year.

Reading town centre saw a flurry of activity with the sale of four multi-let buildings: Palm Capital acquired Abbey Gardens in Reading town centre from Hermes for £40m, Longmead acquired the adjacent building Abbey Gate for £14.83 reflecting 7.81% NIY, Standard Life purchased Pinnacle from KFIM for £13.24m, reflecting 6.75% NIY and Fidelity purchased Phoenix House for £20.25m from Ediston.